Calm before the Big Bang - Japan Airlines on track to report first profit in three years

(Forimmediaterelease.net) Japan Airlines (JAL) reported better-than-expected earnings for the three months ended 31-Dec-07, thanks to strong business travel demand and the suspension of loss-making routes. The carrier has also made in-roads into reducing its bloated staffing costs, while the use of more efficient aircraft lowered fuel expenses.

JAL is on course to return to profitability this fiscal year ending Mar-08 – its first in three years – but the carrier's longer-term outlook is by no means assured.

Despite attempts by President and CEO (since Jun-06), Haruka Nishimatsu, to reform decision-making processes and the airline's corporate culture, JAL is still badly trailing its North Asian rivals’ restructuring efforts.

A new mid-term business plan, to be revealed on 29-Feb-08, will provide more guidance on JAL’s progress and future direction. The plan is likely to be highly conservative in nature – as its core aim is to generate a profit even if jet fuel prices stay at USD110 per barrel.

Meanwhile, there are still highly conservative forces in the Japanese Government that have slowed the aviation sector’s need and resolve to raise its international competitiveness. For example, Transport Minister, Tetsuzo Fuyushiba, recently announced a bill to introduce a 33% cap on foreign participation in Narita, Haneda, Kansai and Chubu airports. It follows Macquarie Airports’ move to increase its stake in Japan Air Terminal (operator of terminal at Haneda Airport) to 19.9%. But Fuyushiba’s bill has raised concerns that the Fukuda Government could backtrack on much-needed economic reforms and caused a split in Cabinet. Consideration of the bill by Cabinet has already been postponed twice.

While the government dithers on basic steps to open up the aviation sector, a fresh competitive onslaught looms.

All Nippon Airways (ANA), which last week released a strong set of earnings for the nine months ended 31-Dec-07, stated “the competition for profits is fierce and it will be difficult to survive if we don't cut costs”.

ANA President and Chief Executive Mineo Yamamoto previously described the big expansion in capacity at Tokyo’s airports from 2010 as the “Big Bang" for Japanese aviation. New entrants, including LCCs, will snap up new slots at Haneda and Narita airports, providing a fresh surge in competition.

JAL has only a few short years to prepare itself, or be caught up in the shock waves.